To what degree do I need to understand accounting?

This is one of those risk areas that the banks are checking for.

Owners that are weak in accounting are subject to the following risks:

Risk of employee theft.

Accounting mistakes that cause underpayment/overpayment of taxes.

Inability to use accounting to spot issues in the business.

Potential bidding errors.

Potential inability to fine tune business profitability.

 

What are financial projections?

Financial projections are merely the accounting result of a series of assumptions. The business assumptions are really the most important component of the financial projections. Basically, if the projections follow accounting rules, they will be the natural financial results you will achieve if all of your assumptions end up true, without any other unknown factors influencing your results. Spend time on the assumptions. Let your accountant project the result of the assumptions. Business plan software also performs financial projections. 

 

Why are financial projections necessary?

They help both the bank and you define risk associated with your assumptions. By understanding the risk, you can make better decisions. Especially in regards to timing of equipment purchases, creation of plant capacity, inventory management, and sustainable growth rate.

 

Why must projections reconcile to historical financial statements?

Reconciling to historic financial statements is an accounting process that ensures that it is possible to get to your end results. This step should be followed by all banks and all SBA loans. Projections that do not reconcile to financial statements are ignored / rejected. Be sure yours reconcile.

 

Will you prepare my projections for me?

Typically -- no. Your accountant is immediately knowledgeable of your accounting system. Therefore it is most efficient for you that he/she prepare your projections. If you do not have an accountant, we suggest you use the projection portion of your accounting software or business plan software. We will be happy to edit the projections and make suggestions. In rare cases we will engage a CPA to support outside preparation for you. However the lack of direct access to accounting support is another risk item that will be evaluated by banks.                                                                                                       

 

© 2005 Preferred Financial Consulting

FAQ — Financial Projections

To contact us:

Preferred Financial Consulting or

Preferred SBA Packaging

8863 Greenback Lane #210

Orangevale, CA 95662